Operations Management, Cdn. Ed.

, 3e (Heizer/Render/Griffin)
Chapter 4 Forecasting

1) A naïve forecast for September sales of a product would be equal to the forecast for August.
Answer: FALSE
Diff: 2 Type: TF
Skill: comprehension
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

2) The forecasting time horizon and the forecasting techniques used tend to vary over the life
cycle of a product.
Answer: TRUE
Diff: 2 Type: TF
Skill: comprehension
Objective: LO1 Understand the three time horizons and which models apply for each

3) Demand (sales) forecasts serve as inputs to financial, marketing, and personnel planning.
Answer: TRUE
Diff: 2 Type: TF
Skill: knowledge
Objective: LO1 Understand the three time horizons and which models apply for each

4) Forecasts of individual products tend to be more accurate than forecasts of product families.
Answer: FALSE
Diff: 3 Type: TF
Skill: knowledge
Objective: LO1 Understand the three time horizons and which models apply for each

5) Most forecasting techniques assume that there is some underlying stability in the system.
Answer: TRUE
Diff: 3 Type: TF
Skill: knowledge
Objective: LO1 Understand the three time horizons and which models apply for each

6) The sales force composite forecasting method relies on salespersons' estimates of expected
sales.
Answer: TRUE
Diff: 1 Type: TF
Skill: knowledge
Objective: LO2 Explain when to use each of the four qualitative methods

7) A time-series model uses a series of past data points to make the forecast.
Answer: TRUE
Diff: 2 Type: TF
Skill: knowledge
Objective: LO2 Explain when to use each of the four qualitative methods

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© 2020 Pearson Canada Inc.
8) The quarterly "make meeting" of Lexus dealers is an example of a sales force composite
forecast.
Answer: TRUE
Diff: 1 Type: TF
Skill: comprehension
Objective: LO2 Explain when to use each of the four qualitative methods

9) Cycles and random variations are both components of time series.

Answer: TRUE
Diff: 1 Type: TF
Skill: knowledge
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

10) Seasonality is a data pattern that repeats itself after a period of days, weeks, months, or
quarters.
Answer: TRUE
Diff: 1 Type: TF
Skill: knowledge
Objective: LO5 Develop seasonal indices

11) One advantage of exponential smoothing is the limited amount of record keeping involved.
Answer: TRUE
Diff: 2 Type: TF
Skill: comprehension
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

12) The larger the number of periods in the simple moving average forecasting method, the
greater the method's responsiveness to changes in demand.
Answer: FALSE
Diff: 2 Type: TF
Skill: comprehension
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

13) Mean Squared Error and Coefficient of Correlation are two measures of the overall error of a
forecasting model.
Answer: FALSE
Diff: 3 Type: TF
Skill: knowledge
Objective: LO4 Compute three measures of forecast accuracy

14) In trend projection, the trend component is the slope of the regression equation.
Answer: TRUE
Diff: 2 Type: TF
Skill: knowledge
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

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© 2020 Pearson Canada Inc.
15) In trend projection, a negative regression slope is mathematically impossible.
Answer: FALSE
Diff: 2 Type: TF
Skill: comprehension
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

16) Seasonal indices adjust raw data for patterns that repeat at regular time intervals.
Answer: TRUE
Diff: 2 Type: TF
Skill: comprehension
Objective: LO5 Develop seasonal indices

17) Patterns in the data that occur every several years are called circuits.
Answer: FALSE
Diff: 1 Type: TF
Skill: knowledge
Objective: Time-series forecasting

18) Linear-regression analysis is a straight-line mathematical model to describe the functional

relationships between independent and dependent variables.
Answer: TRUE
Diff: 3 Type: TF
Skill: knowledge
Objective: LO6 Conduct a regression and correlation analysis

19) The larger the standard error of the estimate, the more accurate the forecasting model.
Answer: FALSE
Diff: 3 Type: TF
Skill: comprehension
Objective: LO4 Compute three measures of forecast accuracy

20) A trend projection equation with a slope of 0.78 means that there is a 0.78 unit rise in Y for
every one unit of time that passes.
Answer: TRUE
Diff: 3 Type: TF
Skill: comprehension
Objective: LO6 Conduct a regression and correlation analysis

21) In a regression equation where Y is demand and X is advertising, a coefficient of

determination ( ) of .70 means that 70% of the variance in advertising is explained by demand.
Answer: FALSE
Diff: 2 Type: TF
Skill: application
Objective: LO6 Conduct a regression and correlation analysis

3
© 2020 Pearson Canada Inc.
22) Demand cycles for individual products can be driven by product life cycles.
Answer: TRUE
Diff: 2 Type: TF
Skill: comprehension
Objective: LO5 Develop seasonal indices

23) If a forecast is consistently greater than (or less than) actual values, the forecast is said to be
biased.
Answer: TRUE
Diff: 2 Type: TF
Skill: comprehension
Objective: LO4 Compute three measures of forecast accuracy

24) Focus forecasting tries a variety of computer models and selects the best one for a particular
application.
Answer: TRUE
Diff: 2 Type: TF
Skill: comprehension
Objective: LO4 Compute three measures of forecast accuracy

25) Many service firms use point-of-sale computers to collect detailed records needed for
accurate short-term forecasts.
Answer: TRUE
Diff: 2 Type: TF
Skill: comprehension
Objective: LO4 Compute three measures of forecast accuracy

26) Technological forecasts address the business cycle by predicting inflation rates, money
supplies, housing starts, and other planning indicators.
Answer: FALSE
Diff: 3 Type: TF
Skill: knowledge
Objective: What is forecasting?

27) Regression lines graphically depict "cause-and-effect" relationships.

Answer: FALSE
Diff: 3 Type: TF
Skill: knowledge
Objective: LO6 Conduct a regression and correlation analysis

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© 2020 Pearson Canada Inc.
28) What two numbers are contained in the daily report to the CEO of Walt Disney Parks &
Resorts regarding the six Orlando parks?
A) yesterday's forecasted attendance and yesterday's actual attendance
B) yesterday's actual attendance and today's forecasted attendance
C) yesterday's forecasted attendance and today's forecasted attendance
D) yesterday's actual attendance and last year's actual attendance
E) yesterday's forecasted attendance and the year-to-date average daily forecast error
Answer: A
Diff: 3 Type: MC
Skill: knowledge
Objective: Global company profile

29) Forecasts
A) become more accurate with longer time horizons.
B) are rarely perfect.
C) are more accurate for individual items than for groups of items.
D) are more accurate for new products than for existing products.
E) are impossible to make.
Answer: B
Diff: 2 Type: MC
Skill: comprehension
Objective: LO1 Understand the three time horizons and which models apply for each

30) One use of short-range forecasts is to determine

A) planning for new products.
B) capital expenditures.
C) research and development plans.
D) facility location.
E) job assignments.
Answer: E
Diff: 2 Type: MC
Skill: knowledge
Objective: LO1 Understand the three time horizons and which models apply for each

31) Forecasts are usually classified by time horizon into three categories
A) short-range, medium-range, and long-range.
B) finance/accounting, marketing, and operations.
C) strategic, tactical, and operational.
D) exponential smoothing, regression, and time series.
E) departmental, organizational, and industrial.
Answer: A
Diff: 1 Type: MC
Skill: comprehension
Objective: LO1 Understand the three time horizons and which models apply for each

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© 2020 Pearson Canada Inc.
32) A forecast with a time horizon of about 3 months to 3 years is typically called a
A) long-range forecast.
B) medium-range forecast.
C) short-range forecast.
D) weather forecast.
E) strategic forecast.
Answer: B
Diff: 2 Type: MC
Skill: knowledge
Objective: LO1 Understand the three time horizons and which models apply for each

33) Forecasts used for new product planning, capital expenditures, facility location or expansion,
and R&D typically utilize a
A) short-range time horizon.
B) medium-range time horizon.
C) long-range time horizon.
D) naive method, because there is no data history.
E) strategic forecast.
Answer: C
Diff: 2 Type: MC
Skill: comprehension
Objective: LO1 Understand the three time horizons and which models apply for each

34) Organizations use which three major types of forecasts, including two that may fall outside
the role of the operations manager?
A) strategic, tactical, and operational
B) economic, technological, and demand
C) exponential smoothing, Delphi, and regression
D) causal, time-series, and seasonal
E) departmental, organizational, and territorial
Answer: B
Diff: 2 Type: MC
Skill: comprehension
Objective: LO2 Explain when to use each of the four qualitative methods

35) Which of the following is not a step in the forecasting process?

A) Determine the use of the forecast.
B) Eliminate any assumptions.
C) Determine the time horizon.
D) Select forecasting model.
E) Validate and implement the results.
Answer: B
Diff: 2 Type: MC
Skill: knowledge
Objective: LO2 Explain when to use each of the four qualitative methods

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© 2020 Pearson Canada Inc.
36) The two general approaches to forecasting are
A) qualitative and quantitative.
B) mathematical and statistical.
C) judgmental and qualitative.
D) historical and associative.
E) judgmental and associative.
Answer: A
Diff: 1 Type: MC
Skill: knowledge
Objective: LO2 Explain when to use each of the four qualitative methods

37) Which of the following uses three types of participants: decision makers, staff personnel, and
respondents?
A) executive opinions
B) sales force composites
C) the Delphi method
D) associative models
E) time series analysis
Answer: C
Diff: 2 Type: MC
Skill: knowledge
Objective: LO2 Explain when to use each of the four qualitative methods

38) The forecasting model that pools the opinions of a group of experts or managers is known as
the
A) expert judgment model.
B) multiple regression model.
C) jury of executive opinion model.
D) consumer market survey model.
E) management coefficients model.
Answer: C
Diff: 2 Type: MC
Skill: comprehension
Objective: LO2 Explain when to use each of the four qualitative methods

39) Which of the following is not a type of qualitative forecasting?

A) executive opinions
B) consumer market surveys
C) sales force composite
D) the Delphi method
E) moving average
Answer: E
Diff: 1 Type: MC
Skill: knowledge
Objective: LO2 Explain when to use each of the four qualitative methods

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© 2020 Pearson Canada Inc.
40) Which of the following techniques uses variables such as price and promotional
expenditures, which are related to product demand, to predict demand?
A) associative models
B) exponential smoothing
C) weighted moving average
D) simple moving average
E) time series
Answer: A
Diff: 3 Type: MC
Skill: knowledge
Objective: LO2 Explain when to use each of the four qualitative methods

41) Which of the following statements about time-series forecasting is true?

A) It is based on the assumption that future demand will be the same as past demand.
B) It makes extensive use of the data collected in the qualitative approach.
C) It is based on the assumption that the analysis of past demand helps predict future demand.
D) Because it accounts for trends, cycles, and seasonal patterns, it is always more powerful than
associative forecasting.
E) All of the above are true.
Answer: C
Diff: 1 Type: MC
Skill: comprehension
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

42) Time-series data may exhibit which of the following behaviors?

A) trend
B) random variations
C) seasonality
D) cycles
E) They may exhibit all of the above.
Answer: E
Diff: 3 Type: MC
Skill: knowledge
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

43) Gradual movement in time-series data over time is called

A) seasonal variation.
B) a cycle.
C) a trend.
D) exponential variation.
E) random variation.
Answer: C
Diff: 2 Type: MC
Skill: knowledge
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

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© 2020 Pearson Canada Inc.
44) Which of the following is not present in a time series?
A) seasonality
B) operational variations
C) trend
D) cycles
E) random variations
Answer: B
Diff: 2 Type: MC
Skill: knowledge
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

45) The fundamental difference between cycles and seasonality is the

A) duration of the repeating patterns.
B) magnitude of the variation.
C) ability to attribute the pattern to a cause.
D) speed of the variation.
E) cycles happen more often than seasonality.
Answer: A
Diff: 2 Type: MC
Skill: comprehension
Objective: LO5 Develop seasonal indices

46) In time series, which of the following cannot be predicted?

A) large increases in demand
B) cycles
C) seasonal fluctuations
D) random fluctuations
E) large decreases in demand
Answer: D
Diff: 1 Type: MC
Skill: knowledge
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

47) What is the approximate forecast for May using a four-month moving average?

Nov. Dec. Jan. Feb. Mar. April

39 36 40 42 48 46

A) 38
B) 42
C) 43
D) 44
E) 47
Answer: D
Diff: 2 Type: MC
Skill: application
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods
9
© 2020 Pearson Canada Inc.
48) Which time-series model below assumes that demand in the next period will be equal to the
most recent period's demand?
A) naive approach
B) moving average approach
C) weighted moving average approach
D) exponential smoothing approach
E) random approach
Answer: A
Diff: 1 Type: MC
Skill: comprehension
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

49) John's House of Pancakes uses a weighted moving average method to forecast pancake sales.
It assigns a weight of 5 to the previous month's demand, 3 to demand two months ago, and 1 to
demand three months ago. If sales amounted to 1000 pancakes in May, 2200 pancakes in June,
and 3000 pancakes in July, what should be the forecast for August?
A) 2400
B) 2511
C) 2067
D) 3767
E) 1622
Answer: B
Diff: 2 Type: MC
Skill: application
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

50) A six-month moving average forecast is generally better than a three-month moving average
forecast if demand
A) is rather stable.
B) has been changing due to recent promotional efforts.
C) follows a downward trend.
D) exceeds one million units per year.
E) follows an upward trend.
Answer: A
Diff: 2 Type: MC
Skill: comprehension
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

10
© 2020 Pearson Canada Inc.
51) Increasing the number of periods in a moving average will accomplish greater smoothing,
but at the expense of
A) manager understanding.
B) accuracy.
C) stability.
D) responsiveness to changes.
E) reliability.
Answer: D
Diff: 1 Type: MC
Skill: comprehension
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

52) Which of the following statements comparing the weighted moving average technique and
exponential smoothing is true?
A) Exponential smoothing is more easily used in combination with the Delphi method.
B) More emphasis can be placed on recent values using the weighted moving average.
C) Exponential smoothing is considerably more difficult to implement on a computer.
D) Exponential smoothing typically requires less record keeping of past data.
E) Exponential smoothing allows one to develop forecasts for multiple periods, whereas
weighted moving averages does not.
Answer: D
Diff: 3 Type: MC
Skill: comprehension
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

53) Which time-series model uses past forecasts and past demand data to generate a new
forecast?
A) naive
B) moving average
C) weighted moving average
D) exponential smoothing
E) regression analysis
Answer: D
Diff: 2 Type: MC
Skill: knowledge
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

54) Which is not a characteristic of exponential smoothing?

A) smooths random variations in the data
B) easily altered weighting scheme
C) weights each historical value equally
D) has minimal data storage requirements
E) None of the above; they are all characteristics of exponential smoothing.
Answer: C
Diff: 2 Type: MC
Skill: comprehension
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods
11
© 2020 Pearson Canada Inc.
55) Which of the following smoothing constants would make an exponential smoothing forecast
equivalent to a naive forecast?
A) 0
B) 1 divided by the number of periods
C) 0.5
D) 1.0
E) cannot be determined
Answer: D
Diff: 1 Type: MC
Skill: application
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

56) Given an actual demand of 103, a previous forecast value of 99, and an alpha of .4, the
exponential smoothing forecast for the next period would be
A) 94.6.
B) 97.4.
C) 100.6.
D) 101.6.
E) 103.0.
Answer: C
Diff: 3 Type: MC
Skill: application
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

57) A forecast based on the previous forecast plus a percentage of the forecast error is a(n)
A) qualitative forecast.
B) naive forecast.
C) moving average forecast.
D) weighted moving average forecast.
E) exponentially smoothed forecast.
Answer: E
Diff: 2 Type: MC
Skill: comprehension
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

58) Given an actual demand of 61, a previous forecast of 58, and an alpha of .3, what would the
forecast for the next period be using simple exponential smoothing?
A) 45.5
B) 57.1
C) 58.9
D) 61.0
E) 65.5
Answer: C
Diff: 2 Type: MC
Skill: application
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods
12
© 2020 Pearson Canada Inc.
59) Which of the following values of alpha would cause exponential smoothing to respond the
most slowly to forecast errors?
A) 0.10
B) 0.20
C) 0.40
D) 0.80
E) cannot be determined
Answer: A
Diff: 2 Type: MC
Skill: application
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

60) A forecasting method has produced the following over the past five months. What is the
mean absolute deviation?

Actual Forecast Error |Error|

10 11 -1 1
8 10 -2 2
10 8 2 2
6 6 0 0
9 8 1 1

A) -0.2
B) -1.0
C) 0.0
D) 1.2
E) 8.6
Answer: D
Diff: 3 Type: MC
Skill: application
Objective: LO4 Compute three measures of forecast accuracy

61) The primary purpose of the mean absolute deviation (MAD) in forecasting is to
A) estimate the trend line.
B) eliminate forecast errors.
C) measure forecast accuracy.
D) seasonally adjust the forecast.
E) all of the above.
Answer: C
Diff: 1 Type: MC
Skill: comprehension
Objective: LO4 Compute three measures of forecast accuracy

13
© 2020 Pearson Canada Inc.
62) Given forecast errors of -1, 4, 8, and -3, what is the mean absolute deviation?
A) 2
B) 3
C) 4
D) 8
E) 16
Answer: C
Diff: 2 Type: MC
Skill: application
Objective: LO4 Compute three measures of forecast accuracy

63) The last four months of sales were 8, 10, 15, and 9 units. The last four forecasts were 5, 6,
11, and 12 units. The Mean Absolute Deviation (MAD) is
A) 2.
B) -10.
C) 3.5.
D) 9.
E) 10.5.
Answer: C
Diff: 2 Type: MC
Skill: application
Objective: LO4 Compute three measures of forecast accuracy

64) A time series trend equation is 25.3 + 2.1 X. What is your forecast for period 7?
A) 23.2
B) 25.3
C) 27.4
D) 40.0
E) cannot be determined
Answer: D
Diff: 2 Type: MC
Skill: application
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

65) For a given product demand, the time series trend equation is 53 - 4 X. The negative sign on
the slope of the equation
A) is a mathematical impossibility.
B) is an indication that the forecast is biased, with forecast values lower than actual values.
C) is an indication that product demand is declining.
D) implies that the coefficient of determination will also be negative.
E) implies that the cumulative error will be negative.
Answer: C
Diff: 2 Type: MC
Skill: application
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

14
© 2020 Pearson Canada Inc.
66) Yamaha manufactures which set of products with complementary demands to address
seasonal fluctuations?
A) golf clubs and skis
B) swimming suits and winter jackets
C) jet skis and snowmobiles
D) pianos and guitars
E) ice skates and water skis
Answer: C
Diff: 2 Type: MC
Skill: comprehension
Objective: LO5 Develop seasonal indices

67) Which of the following is true regarding the two smoothing constants of the Forecast
Including Trend (FIT) model?
A) One constant is positive, while the other is negative.
B) They are called MAD and cumulative error.
C) Alpha is always smaller than beta.
D) One constant smooths the regression intercept, whereas the other smooths the regression
slope.
E) Their values are determined independently.
Answer: E
Diff: 3 Type: MC
Skill: comprehension
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

68) Demand for a certain product is forecast to be 800 units per month, averaged over all 12
months of the year. The product follows a seasonal pattern, for which the January monthly index
is 1.25. What is the seasonally-adjusted sales forecast for January?
A) 640 units
B) 798.75 units
C) 801.25 units
D) 1000 units
E) 88.33 units
Answer: D
Diff: 2 Type: MC
Skill: application
Objective: LO5 Develop seasonal indices

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69) A seasonal index for a monthly series is about to be calculated on the basis of three years'
accumulation of data. The three previous July values were 110, 150, and 130. The average over
all months is 190. The approximate seasonal index for July is
A) 0.487.
B) 0.684.
C) 1.462.
D) 2.053.
E) cannot be calculated with the information given.
Answer: B
Diff: 2 Type: MC
Skill: application
Objective: LO5 Develop seasonal indices

70) A fundamental distinction between trend projection and linear regression is that
A) trend projection uses least squares while linear regression does not.
B) only linear regression can have a negative slope.
C) in trend projection the independent variable is time; in linear regression the independent
variable need not be time, but can be any variable with explanatory power.
D) trend projection can be a function of several variables, while linear regression can only be a
function of one variable.
E) trend projection uses two smoothing constants, not just one.
Answer: C
Diff: 3 Type: MC
Skill: comprehension
Objective: LO6 Conduct a regression and correlation analysis

71) The degree or strength of a relationship between two variables is shown by the
A) alpha.
B) mean.
C) mean absolute deviation.
D) correlation coefficient.
E) cumulative error.
Answer: D
Diff: 2 Type: MC
Skill: knowledge
Objective: LO6 Conduct a regression and correlation analysis

72) If two variables were perfectly correlated, the correlation coefficient r would equal
A) 0.
B) -1.
C) 1.
D) 1 or -1.
E) -2.
Answer: D
Diff: 2 Type: MC
Skill: application
Objective: LO6 Conduct a regression and correlation analysis
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© 2020 Pearson Canada Inc.
73) The last four weekly values of sales were 80, 100, 105, and 90 units. The last four forecasts
were 60, 80, 95, and 75 units. These forecasts illustrate
A) qualitative methods.
B) adaptive smoothing.
C) slope.
D) bias.
E) trend projection.
Answer: D
Diff: 1 Type: MC
Skill: comprehension
Objective: LO7 Use a tracking signal

74) The tracking signal is the

A) standard error of the estimate.
B) absolute deviation of the last period's forecast.
C) mean absolute deviation (MAD).
D) ratio of cumulative error/MAD.
E) mean absolute percentage error (MAPE).
Answer: D
Diff: 2 Type: MC
Skill: comprehension
Objective: LO7 Use a tracking signal

75) Computer monitoring of tracking signals and self-adjustment if a signal passes a preset limit
is characteristic of
A) exponential smoothing including trend.
B) adaptive smoothing.
C) trend projection.
D) focus forecasting.
E) multiple regression analysis.
Answer: B
Diff: 2 Type: MC
Skill: comprehension
Objective: LO7 Use a tracking signal

76) Many services maintain records of sales noting

A) the day of the week.
B) unusual events.
C) weather.
D) holidays.
E) all of the above.
Answer: E
Diff: 3 Type: MC
Skill: knowledge
Objective: LO2 Explain when to use each of the four qualitative methods

17
© 2020 Pearson Canada Inc.
77) Taco Bell's unique employee scheduling practices are partly the result of using
A) point-of-sale computers to track food sales in 15 minute intervals and a six-week moving
average forecasting technique.
B) focus forecasting and multiple regression.
C) a six-week moving average forecasting technique and multiple regression.
D) singular regression.
E) work breakdown structures.
Answer: A
Diff: 3 Type: MC
Skill: knowledge
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

78) Which of the following most requires long-range forecasting (as opposed to short-range or
medium-range forecasting) for its planning purposes?
A) job scheduling
B) production levels
C) cash budgeting
D) capital expenditures
E) purchasing
Answer: D
Diff: 2 Type: MC
Skill: comprehension
Objective: LO1 Understand the three time horizons and which models apply for each

79) Suppose that demand in period 1 was 7 units and the demand in period 2 was 9 units.
Assume that the forecast for period 1 was for 5 units. If the firm uses exponential smoothing with
an alpha value of .20, what should be the forecast for period 3? (Round answers to two decimal
places.)
A) 9.00
B) 3.72
C) 9.48
D) 5.00
E) 6.12
Answer: E
Diff: 2 Type: MC
Skill: application
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

18
© 2020 Pearson Canada Inc.
80) ________ expresses the error as a percent of the actual values, undistorted by a single large
value.
A) MAD
B) MSE
C) MAPE
D) FIT
E) The smoothing constant
Answer: C
Diff: 2 Type: MC
Skill: comprehension
Objective: LO4 Compute three measures of forecast accuracy

81) If Brandon Edward were working to develop a forecast using a moving averages approach,
but he noticed a detectable trend in the historical data, he should
A) use weights to place more emphasis on recent data.
B) use weights to minimize the importance of the trend.
C) change to a naïve approach.
D) use a simple moving average.
E) change to a qualitative approach.
Answer: A
Diff: 2 Type: MC
Skill: comprehension
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

82) What is the approximate forecast for May using a three-month moving average?

Nov. Dec. Jan. Feb. Mar. April

39 36 40 42 48 45

A) 38
B) 42
C) 43
D) 44
E) 45
Answer: E
Diff: 2 Type: MC
Skill: application
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

19
© 2020 Pearson Canada Inc.
83) What is the approximate forecast for May using a five-month moving average?

Nov. Dec. Jan. Feb. Mar. April

39 35 40 42 48 45

A) 38
B) 42
C) 43
D) 44
E) 45
Answer: B
Diff: 2 Type: MC
Skill: application
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

84) Betty's House of Flapjacks uses a weighted moving average method to forecast flapjack
sales. It assigns a weight of 6 to the previous month's demand, 4 to demand two months ago, and
3 to demand three months ago. If sales amounted to 1100 flapjacks in May, 2000 flapjacks in
June, and 2500 flapjacks in July, what should be the forecast for August?
A) 2400
B) 2023
C) 2167
D) 3767
E) 1622
Answer: B
Diff: 2 Type: MC
Skill: application
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

85) Betty's House of Waffles uses a weighted moving average method to forecast waffle sales. It
assigns a weight of 7 to the previous month's demand, 4 to demand two months ago, and 3 to
demand three months ago. If sales amounted to 1400 waffles in May, 1700 waffles in June, and
2200 waffles in July, what should be the forecast for August?
A) 1410
B) 1885
C) 1967
D) 2067
E) 1622
Answer: B
Diff: 2 Type: MC
Skill: application
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

20
© 2020 Pearson Canada Inc.
86) Given an actual demand of 105, a previous forecast value of 99, and an alpha of .3, the
exponential smoothing forecast for the next period would be
A) 94.6.
B) 97.4.
C) 100.8.
D) 101.6.
E) 103.0.
Answer: C
Diff: 3 Type: MC
Skill: application
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

87) Given an actual demand of 310, a previous forecast value of 299, and an alpha of .2, the
exponential smoothing forecast for the next period would be
A) 299.6.
B) 297.4.
C) 301.2.
D) 307.8.
E) 303.0.
Answer: C
Diff: 3 Type: MC
Skill: application
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

88) Which of the following values of alpha would cause exponential smoothing to respond the
most quickly to forecast errors?
A) 0.10
B) 0.20
C) 0.40
D) 0.80
E) cannot be determined
Answer: D
Diff: 2 Type: MC
Skill: application
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

21
© 2020 Pearson Canada Inc.
89) A forecasting method has produced the following over the past five months. What is the
mean absolute deviation?

Actual Forecast Error |Error|

10 12 -2 2
8 11 -3 3
10 9 1 1
6 6 0 0
9 6 3 3

A) -0.2
B) -1.0
C) 0.0
D) 1.8
E) 9.0
Answer: D
Diff: 3 Type: MC
Skill: application
Objective: LO4 Compute three measures of forecast accuracy

90) Given forecast errors of -1, 5, 9, and -3, what is the mean absolute deviation?
A) 2
B) 3.5
C) 4.5
D) 8.6
E) 18
Answer: C
Diff: 2 Type: MC
Skill: application
Objective: LO4 Compute three measures of forecast accuracy

91) The last four months of actual sales were 8, 10, 15, and 9 units. The last four forecasts were
7, 6, 13, and 15 units. The Mean Absolute Deviation (MAD) is
A) 2.
B) -10.
C) 3.25.
D) 9.
E) 13.
Answer: C
Diff: 2 Type: MC
Skill: application
Objective: LO4 Compute three measures of forecast accuracy

22
© 2020 Pearson Canada Inc.
92) ________ forecasts are concerned with rates of technological progress, which can result in
the birth of exciting new products, requiring new plants and equipment.
Answer: Technological
Diff: 2 Type: SA
Skill: knowledge
Objective: LO1 Understand the three time horizons and which models apply for each

93) ________ forecasts address the business cycle by predicting inflation rates, money supplies,
housing starts, and other planning indicators.
Answer: Economic
Diff: 2 Type: SA
Skill: knowledge
Objective: LO1 Understand the three time horizons and which models apply for each

94) Demand forecasts, also called ________ forecasts, are projections of demand for a
company's products or services.
Answer: sales
Diff: 2 Type: SA
Skill: comprehension
Objective: LO1 Understand the three time horizons and which models apply for each

95) ________ forecasts employ one or more mathematical models that rely on historical data
and/or associative variables to forecast demand.
Answer: Quantitative
Diff: 2 Type: SA
Skill: comprehension
Objective: LO2 Explain when to use each of the four qualitative methods

96) ________ is a forecasting technique based upon salespersons' estimates of expected sales.
Answer: Sales force composite
Diff: 1 Type: SA
Skill: knowledge
Objective: LO2 Explain when to use each of the four qualitative methods

97) ________ forecasts use a series of past data points to make a forecast.
Answer: Time-series
Diff: 1 Type: SA
Skill: knowledge
Objective: LO2 Explain when to use each of the four qualitative methods

98) A(n) ________ forecast uses an average of the most recent periods of data to forecast the
next period.
Answer: moving average
Diff: 2 Type: SA
Skill: knowledge
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

23
© 2020 Pearson Canada Inc.
99) The smoothing constant is a weighting factor used in ________.
Answer: exponential smoothing
Diff: 2 Type: SA
Skill: knowledge
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

100) Linear regression is known as a(n) ________ because it incorporates variables or factors
that might influence the quantity being forecast.
Answer: associative model
Diff: 2 Type: SA
Skill: knowledge
Objective: LO2 Explain when to use each of the four qualitative methods

101) A measure of forecast error that does not depend on the magnitude of the item being
forecast is the ________.
Answer: mean absolute percent error or MAPE
Diff: 1 Type: SA
Skill: comprehension
Objective: LO4 Compute three measures of forecast accuracy

102) ________ is a measure of overall forecast error for a model.

Answer: MAD or Mean Absolute Deviation
Diff: 1 Type: SA
Skill: comprehension
Objective: LO4 Compute three measures of forecast accuracy

103) When one constant is used to smooth the forecast average and a second constant is used to
smooth the trend, the forecasting method is ________.
Answer: exponential smoothing with trend adjustment or trend-adjusted smoothing or
second-order smoothing or double smoothing
Diff: 2 Type: SA
Skill: comprehension
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

104) ________ is a time-series forecasting method that fits a trend line to a series of historical
data points and then projects the line into the future for forecasts.
Answer: Trend projection
Diff: 2 Type: SA
Skill: comprehension
Objective: LO2 Explain when to use each of the four qualitative methods

105) The ________ measures the strength of the relationship between two variables.
Answer: coefficient of correlation
Diff: 2 Type: SA
Skill: comprehension
Objective: LO6 Conduct a regression and correlation analysis

24
© 2020 Pearson Canada Inc.
106) If a barbershop operator noted that Tuesday's business was typically twice as heavy as
Wednesday's, and that Friday's business was typically the busiest of the week, business at the
barbershop is subject to ________.
Answer: seasonal variations
Diff: 2 Type: SA
Skill: comprehension
Objective: LO5 Develop seasonal indices

107) ________ forecasting tries a variety of computer models and selects the best one for a
particular application.
Answer: Focus
Diff: 2 Type: SA
Skill: comprehension
Objective: LO7 Use a tracking signal

108) ________ are useful if we can assume that market demands will stay fairly steady over
time.
Answer: Moving averages
Diff: 2 Type: SA
Skill: comprehension
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

109) An approach to exponential smoothing in which the smoothing constant is automatically

changed to keep errors to a minimum is called ________.
Answer: adaptive smoothing
Diff: 2 Type: SA
Skill: knowledge
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

110) A skeptical manager asks what short-range forecasts can be used for. Give her three
possible uses/purposes.
Answer: Any three of: planning purchasing, job scheduling, workforce levels, job assignments,
production levels.
Diff: 2 Type: ES
Skill: comprehension
Objective: LO1 Understand the three time horizons and which models apply for each

111) A skeptical manager asks what long-range forecasts can be used for. Give her three possible
uses/purposes.
Answer: Any three of: planning new products, capital expenditures, facility location or
expansion, research and development.
Diff: 2 Type: ES
Skill: comprehension
Objective: LO1 Understand the three time horizons and which models apply for each

25
© 2020 Pearson Canada Inc.
112) Describe the three forecasting time horizons and their use.
Answer: Forecasting time horizons are: short range—generally less than three months, used for
purchasing, job scheduling, workforce levels, production levels; medium range—usually from
three months up to three years, used for sales planning, production planning and budgeting, cash
budgeting, analyzing operating plans; long range—usually three years or more, used for new
product development, capital expenditures, facility planning, and R&D.
Diff: 2 Type: ES
Skill: comprehension
Objective: LO1 Understand the three time horizons and which models apply for each

113) List and briefly describe the three major types of forecasts.
Answer: The three types are economic, technological, and demand; economic refers to
macroeconomic, growth and financial variables; technological refers to forecasting amount of
technological advance, or futurism; demand refers to product demand.
Diff: 2 Type: ES
Skill: comprehension
Objective: LO2 Explain when to use each of the four qualitative methods

114) Identify the seven steps involved in forecasting.

Answer: 1. Determine the use of the forecast.
2. Select the items that are to be forecast.
3. Determine the time horizon of the forecast.
4. Select the forecasting model(s).
5. Gather the data needed to make the forecast.
6. Make the forecast.
7. Validate the forecasting mode and implement the results.
Diff: 3 Type: ES
Skill: knowledge
Objective: LO2 Explain when to use each of the four qualitative methods

115) What are the realities of forecasting that companies face?

Answer: First, forecasts are seldom perfect. Second, most forecasting techniques assume that
there is some underlying stability in the system. Finally, both product family and aggregated
forecasts are more accurate than individual product forecasts.
Diff: 2 Type: ES
Skill: comprehension
Objective: LO2 Explain when to use each of the four qualitative methods

116) What are the differences between quantitative and qualitative forecasting methods?
Answer: Quantitative methods use mathematical models to analyze historical data. Qualitative
methods incorporate such factors as the decision maker's intuition, emotions, personal
experiences, and value systems in determining the forecast.
Diff: 2 Type: ES
Skill: comprehension
Objective: LO2 Explain when to use each of the four qualitative methods

26
© 2020 Pearson Canada Inc.
117) Identify four quantitative forecasting methods.
Answer: The list includes naive, moving averages, exponential smoothing, trend projection, and
linear regression.
Diff: 2 Type: ES
Skill: knowledge
Objective: LO2 Explain when to use each of the four qualitative methods

118) What is a time-series forecasting model?

Answer: A time-series forecasting model is any mathematical model that uses historical values
of the quantity of interest to predict future values of that quantity.
Diff: 1 Type: ES
Skill: comprehension
Objective: LO2 Explain when to use each of the four qualitative methods

119) What is the difference between an associative model and a time-series model?
Answer: A time-series model uses only historical values of the quantity of interest to predict
future values of that quantity. The associative model, on the other hand, attempts to identify
underlying factors that control the variation of the quantity of interest, predict future values of
these factors, and use these predictions in a model to predict future values of the specific quantity
of interest.
Diff: 2 Type: ES
Skill: comprehension
Objective: LO2 Explain when to use each of the four qualitative methods

120) Name and discuss three qualitative forecasting methods.

Answer: Qualitative forecasting methods include: jury of executive opinion, where high-level
managers arrive at a group estimate of demand; sales force composite, where salespersons'
estimates are aggregated; Delphi method, where respondents provide inputs to a group of
decision makers; the group of decision makers, often experts, then make the actual forecast;
consumer market survey, where consumers are queried about their future purchase plans.
Diff: 2 Type: ES
Skill: comprehension
Objective: LO2 Explain when to use each of the four qualitative methods

121) Identify four components of a time series. Which one of these is rarely forecast? Why is this
so?
Answer: Trend, seasonality, cycles, and random variation. Since random variations follow no
discernible pattern, they cannot be predicted, and thus are not forecast.
Diff: 2 Type: ES
Skill: comprehension
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

27
© 2020 Pearson Canada Inc.
122) Compare seasonal effects and cyclical effects.
Answer: A cycle is longer (typically several years) than a season (typically days, weeks, months,
or quarters). A cycle has variable duration, while a season has fixed duration and regular
repetition.
Diff: 3 Type: ES
Skill: comprehension
Objective: LO5 Develop seasonal indices

123) Distinguish between a moving average model and an exponential smoothing model.
Answer: Exponential smoothing is a weighted moving average model wherein previous values
are weighted in a specific manner—in particular, all previous values are weighted with a set of
weights that decline exponentially.
Diff: 3 Type: ES
Skill: comprehension
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

124) Describe three popular measures of forecast accuracy.

Answer: Measures of forecast accuracy include: (a) MAD (mean absolute deviation) is a sum of
the absolute values of individual errors divided by the number of periods of data. (b) MSE (mean
squared error) is the average of the squared differences between the forecast and observed
values. (c) MAPE (mean absolute percent error) is independent of the magnitude of the variable
being forecast.
Diff: 2 Type: ES
Skill: knowledge
Objective: LO4 Compute three measures of forecast accuracy

125) Give an example—other than a restaurant or other food-service firm—of an organization

that experiences an hourly seasonal pattern. (That is, each hour of the day has a pattern that tends
to repeat day after day.) Explain.
Answer: Answer will vary. However, two non-food examples would be banks and movie
theaters.
Diff: 2 Type: ES
Skill: comprehension
Objective: LO5 Develop seasonal indices

126) Explain the role of regression models (time series and otherwise) in forecasting. That is,
how is trend projection able to forecast? How is regression used for causal forecasting?
Answer: For trend projection, the independent variable is time. The trend projection equation
has a slope that is the change in demand per period. To forecast the demand for period t, perform
the calculation a + bt. For causal forecasting, the independent variables are predictors of the
forecast value or dependent variable. The slope of the regression equation is the change in the Y
variable per unit change in the X variable.
Diff: 3 Type: ES
Skill: comprehension
Objective: LO6 Conduct a regression and correlation analysis

28
© 2020 Pearson Canada Inc.
127) Identify three advantages of the moving average forecasting model. Identify three
disadvantages of the moving average forecasting model.
Answer: Three advantages of the model are that it uses simple calculations, it smooths out
sudden fluctuations, and it is easy for users to understand. The disadvantages are that the
averages always stay within past ranges, that they require extensive record keeping of past data,
and that they do not pick up on trends very well.
Diff: 2 Type: ES
Skill: comprehension
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

128) What does it mean to "decompose" a time series?

Answer: To decompose a time series means to break past data down into components of trends,
seasonality, cycles, and random blips, and to project them forward.
Diff: 1 Type: ES
Skill: comprehension
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

129) Distinguish a dependent variable from an independent variable.

Answer: The independent variable is related to some behavior in the dependent variable; the
dependent variable shows the effect of changes in the independent variable.
Diff: 2 Type: ES
Skill: comprehension
Objective: LO6 Conduct a regression and correlation analysis

130) Explain, in your own words, the meaning of the coefficient of determination.
Answer: The coefficient of determination measures the amount (percent) of total variation in the
data that is explained by the model.
Diff: 2 Type: ES
Skill: comprehension
Objective: LO6 Conduct a regression and correlation analysis

131) What is a tracking signal? Explain the connection between adaptive smoothing and tracking
signals.
Answer: A tracking signal is a measure of how well the forecast actually predicts. The larger the
absolute tracking signal, the worse the forecast is performing. Adaptive smoothing sets limits to
the tracking signal, and makes changes to its forecasting models when the tracking signal goes
beyond those limits.
Diff: 3 Type: ES
Skill: comprehension
Objective: LO7 Use a tracking signal

132) What is focus forecasting?

Answer: It is a forecasting method that tries a variety of computer models, and selects the one
that is best for a particular application.
Diff: 2 Type: ES
Skill: knowledge
Objective: LO7 Use a tracking signal
29
© 2020 Pearson Canada Inc.
133) What is the key difference between weighted moving average and simple moving average
approaches to forecasting?
Answer: Simple moving averages are useful where there is no identifiable trend in the historical
data, i.e. demand has been fairly steady over time. If there was an identifiable trend, weighted
moving averages would provide a more accurate forecast since higher weights would be put on
the most recent data.
Diff: 3 Type: ES
Skill: comprehension
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

134) Weekly sales of ten-grain bread at the local organic food market are in the table below.
Based on this data, forecast week 9 using a five-week moving average.

Week Sales
1 415
2 389
3 420
4 382
5 410
6 432
7 405
8 421
Answer: (382 + 410 + 432 + 405 + 421)/5 = 410.0
Diff: 1 Type: ES
Skill: application
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

30
© 2020 Pearson Canada Inc.
135) Given the following data, calculate the three-year moving averages for years 4 through 10.

Year Demand
1 74
2 90
3 59
4 91
5 140
6 98
7 110
8 123
9 99

Answer:
Year Demand 3-Year Moving Ave.
1 74
2 90
3 59
4 91 74.33
5 140 80.00
6 98 96.67
7 110 109.67
8 123 116.00
9 99 110.33
110.67

Diff: 2 Type: ES
Skill: application
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

136) What is the forecast for May based on a weighted moving average applied to the following
past demand data and using the weights: 4, 3, 2 (largest weight is for most recent data)?

Nov. Dec. Jan. Feb. Mar. April

37 36 40 42 47 43

Answer: 2 × 42 + 3 × 47 + 4 × 43 = 84 + 141 + 172 = 397; 397/9 = 44.1

Diff: 1 Type: ES
Skill: application
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

31
© 2020 Pearson Canada Inc.
137) Weekly sales of copy paper at Cubicle Suppliers are in the table below. Compute a three-
period moving average and a four-period moving average for weeks 5, 6, and 7. Compute MAD
for each forecast. Which model is more accurate? Forecast week 8 with the more accurate
method.

Week Sales (cases)

1 17
2 21
3 27
4 31
5 19
6 17
7 21
Answer:
Sales
Week (cases) 3MA |error| 4MA |error|
1 17
2 21
3 27
4 31 21.7 9.3
5 19 26.3 7.3 24.0 5.0
6 17 25.7 8.7 24.5 7.5
7 21 22.3 1.3 23.5 2.5
8 19.0 22.0

The four-week moving average is more accurate. The forecast with the 4-moving average is
22.0.
Diff: 2 Type: ES
Skill: application
Objective: LO4 Compute three measures of forecast accuracy

138) The last four weekly values of sales were 80, 100, 105, and 90 units. The last four forecasts
(for the same four weeks) were 60, 80, 95, and 75 units. Calculate MAD, MSE, and MAPE for
these four weeks.

Sales Forecast Error Error squared Pct. error

80 60 20 400 .25
100 80 20 400 .20
105 95 10 100 .095
90 75 15 225 .167

Answer: MAD = 65/4 = 16.25; MSE = 1125/4 = 281.25; MAPE = 0.712/4 = .178 or 17.8%
Diff: 2 Type: ES
Skill: application
Objective: LO4 Compute three measures of forecast accuracy

32
© 2020 Pearson Canada Inc.
139) A management analyst is using exponential smoothing to predict merchandise returns at an
upscale branch of a department store chain. Given an actual number of returns of 154 items in
the most recent period completed, a forecast of 172 items for that period, and a smoothing
constant of 0.3, what is the forecast for the next period? How would the forecast be changed if
the smoothing constant were 0.6? Explain the difference in terms of alpha and responsiveness.
Answer: 166.6; 161.2 The larger the smoothing constant in an exponentially smoothed forecast,
the more responsive the forecast.
Diff: 1 Type: ES
Skill: application
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

140) The following trend projection is used to predict quarterly demand: Y = 250 - 2.5t, where t
= 1 in the first quarter. Seasonal (quarterly) indices are Quarter 1 = 1.5; Quarter 2 = 0.8; Quarter
3 = 1.1; and Quarter 4 = 0.6. What is the seasonally adjusted forecast for the next four quarters?
Answer: Quarter Projection Adjusted
1 247.5 371.25
2 245 196
3 242.5 266.75
4 240 144
Diff: 2 Type: ES
Skill: application
Objective: LO5 Develop seasonal indices

33
© 2020 Pearson Canada Inc.
141) Jim's department at a local department store has tracked the sales of a product over the last
ten weeks. Forecast demand using exponential smoothing with an alpha of 0.4, and an initial
forecast of 28.0 for period 1. Calculate the MAD. What do you recommend?

Period Demand
1 24
2 23
3 26
4 36
5 26
6 30
7 32
8 26
9 25
10 28

Answer:
Period Demand Forecast Error Absolute
1 24 28.00
2 23 26.40 -3.40 3.40
3 26 25.04 0.96 0.96
4 36 25.42 10.58 10.58
5 26 29.65 -3.65 3.65
6 30 28.19 1.81 1.81
7 32 28.92 3.08 3.08
8 26 30.15 -4.15 4.15
9 25 28.49 -3.49 3.49
10 28 27.09 0.91 0.91
Total 2.64 32.03
Average 0.29 3.56
Bias MAD

The tracking signal RSFE/MAD = 2.64/3.56 = .742 is low; therefore, keep using the forecasting
method.
Diff: 2 Type: ES
Skill: application
Objective: LO4 Compute three measures of forecast accuracy

34
© 2020 Pearson Canada Inc.
142) Favors Distribution Company purchases small imported trinkets in bulk, packages them,
and sells them to retail stores. They are conducting an inventory control study of all their items.
The following data are for one such item, which is not seasonal.
a. Use trend projection to estimate the relationship between time and sales (state the equation).
b. Calculate forecasts for the first four months of the next year.

1 2 3 4 5 6 7 8 9 10 11 12
Month Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Sales 51 55 54 57 50 68 66 59 67 69 75 73

Answer: The trend projection equation is Y = 48.32 + 2.105 T. The next four months are
forecast to be 75.68, 77.79, 79.89, and 82.00.
Diff: 2 Type: ES
Skill: application
Objective: LO6 Conduct a regression and correlation analysis

35
© 2020 Pearson Canada Inc.
143) Use exponential smoothing with trend adjustment to forecast deliveries for period 10. Let
alpha = 0.4, beta = 0.2, and let the initial trend value be 4 and the initial forecast be 200.

Actual
Period
Demand
1 200
2 212
3 214
4 222
5 236
6 221
7 240
8 244
9 250
10 266

Answer:
Actual Forecast Trend FIT
1 200 200.00 4.00
2 212 202.40 3.68 206.08
3 214 208.45 4.15 212.60
4 222 213.16 4.27 217.43
5 236 219.26 4.63 223.89
6 221 228.73 5.60 234.33
7 240 229.00 4.53 233.53
8 244 236.12 5.05 241.17
9 250 242.30 5.28 247.58
10 266 248.55 5.47 254.02

Diff: 3 Type: ES
Skill: application
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

144) A small family-owned restaurant uses a seven-day moving average model to determine
manpower requirements. These forecasts need to be seasonalized because each day of the week
has its own demand pattern. The seasonal indices for each day of the week are: Monday, 0.445;
Tuesday, 0.791; Wednesday, 0.927; Thursday, 1.033; Friday, 1.422; Saturday, 1.478; and
Sunday 0.903. Average daily demand based on the most recent moving average is 194 patrons.
What is the seasonalized forecast for each day of next week?
Answer: The average value multiplied by each day's seasonal index. Monday: 194 × .445 = 86;
Tuesday: 194 × .791 = 153; Wednesday: 194 × .927 = 180; Thursday: 194 × 1.033 = 200;
Friday: 194 × 1.422 = 276; Saturday: 194 × 1.478 = 287; and Sunday: 194 × .903 = 175.
Diff: 3 Type: ES
Skill: application
Objective: LO5 Develop seasonal indices

36
© 2020 Pearson Canada Inc.
145) A restaurant has tracked the number of meals served at lunch over the last four weeks. The
data shows little in terms of trends, but does display substantial variation by day of the week.
Use the following information to determine the seasonal (daily) index for this restaurant.

Week
Day 1 2 3 4
Sunday 40 35 39 43
Monday 54 55 51 59
Tuesday 61 60 65 64
Wednesday 72 77 78 69
Thursday 89 80 81 79
Friday 91 90 99 95
Saturday 80 82 81 83

Answer:
Day Index
Sunday 0.5627
Monday 0.7855
Tuesday 0.8963
Wednesday 1.0618
Thursday 1.1800
Friday 1.3444
Saturday 1.1692

Diff: 2 Type: ES
Skill: application
Objective: LO5 Develop seasonal indices

146) A firm has modeled its experience with industrial accidents and found that the number of
accidents per year (Y) is related to the number of employees (X) by the regression equation Y =
3.3 + 0.049 × X. R-Square is 0.68. The regression is based on 20 annual observations. The firm
intends to employ 480 workers next year. How many accidents do you project? How much
confidence do you have in that forecast?
Answer: Y = 3.3 + 0.049 × 480 = 3.3 + 23.52 = 26.82 accidents. This is not a time series, so
next year = year 21 is of no relevance. Confidence comes from the coefficient of determination;
the model explains 68% of the variation in number of accidents, which seems respectable.
Diff: 3 Type: ES
Skill: application
Objective: LO6 Conduct a regression and correlation analysis

37
© 2020 Pearson Canada Inc.
147) Demand for a certain product is forecast to be 8,000 units per month, averaged over all 12
months of the year. The product follows a seasonal pattern, for which the January monthly index
is 1.25. What is the seasonally-adjusted sales forecast for January?
Answer: 8,000 × 1.25 = 10,000
Diff: 1 Type: ES
Skill: application
Objective: LO5 Develop seasonal indices

148) A seasonal index for a monthly series is about to be calculated on the basis of three years'
accumulation of data. The three previous July values were 110, 135, and 130. The average over
all months is 160. The approximate seasonal index for July is:
Answer: (110 + 135 + 130)/3 = 125; 125/160 = 0.781
Diff: 2 Type: ES
Skill: application
Objective: LO5 Develop seasonal indices

149) Marie Bain is the production manager at a company that manufactures hot water heaters.
Marie needs a demand forecast for the next few years to help decide whether to add new
production capacity. The company's sales history (in thousands of units) is shown in the table
below. Use exponential smoothing with trend adjustment, to forecast demand for period 6. The
initial forecast for period 1 was 11 units; the initial estimate of trend was 0. The smoothing
constants are α = .3 and β = .3.

Period Actual
1 12
2 15
3 16
4 16
5 18
6 20

Answer:
Period Actual Forecast Trend FIT
1 12 11.00 0.00
2 15 11.30 0.09 11.39
3 16 12.47 0.41 12.89
4 16 13.82 0.69 14.52
5 18 14.96 0.83 15.79
6 20 16.45 1.03 17.48

Diff: 2 Type: ES
Skill: application
Objective: LO3 Apply the naive, moving-average, exponential smoothing, and trend methods

38
© 2020 Pearson Canada Inc.
150) The quarterly sales for specific educational software over the past three years are given in
the following table. Compute the four seasonal factors.

YEAR 1 YEAR 2 YEAR 3

Quarter 1 1710 1820 1830
Quarter 2 960 910 1090
Quarter 3 2720 2840 2900
Quarter 4 2430 2200 2590

Answer:
Avg. Sea. Fact.
Quarter 1 1786.67 0.8933
Quarter 2 986.67 0.4933
Quarter 3 2820.00 1.4100
Quarter 4 2406.67 1.2033
Grand Average 2000.00

Diff: 2 Type: ES
Skill: application
Objective: LO5 Develop seasonal indices

151) An innovative restaurateur owns and operates a dozen "Ultimate Low-Carb" restaurants in
Ontario. His signature item is a cheese-encrusted beef medallion wrapped in lettuce. Sales (X, in
millions of dollars) is related to Profits (Y, in hundreds of thousands of dollars) by the regression
equation Y = 8.21 + 0.76 X. What is your forecast of profit for a store with sales of $40 million?
$50 million?
Answer: Students must recognize that sales is the independent variable and profits is dependent;
the problem is not a time series. A store with $40 million in sales: 40 × 0.76 = 30.4; 30.4 + 8.21
= 38.61, or $3,861,000 in profit; $50 million in sales is estimated to profit 46.21 or $4,621,000.
Diff: 2 Type: ES
Skill: application
Objective: LO6 Conduct a regression and correlation analysis

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152) Arnold Tofu owns and operates a chain of 12 vegetable protein "hamburger" restaurants in
Quebec. Sales figures and profits for the stores are in the table below. Sales are given in millions
of dollars; profits are in hundreds of thousands of dollars. Calculate a regression line for the data.
What is your forecast of profit for a store with sales of $24 million? $30 million?

Store Profits Sales

1 14 6
2 11 3
3 15 5
4 16 5
5 24 15
6 28 18
7 22 17
8 21 12
9 26 15
10 43 20
11 34 14
12 9 5

Answer: Students must recognize that "sales" is the independent variable and profits is
dependent. Store number is not a variable, and the problem is not a time series. The regression
equation is Y = 5.936 + 1.421 X (Y = profit, X = sales). A store with $24 million in sales is
estimated to profit 40.04 or $4,004,000; $30 million in sales should yield 48.566 or $4,856,600
in profit.
Diff: 2 Type: ES
Skill: application
Objective: LO6 Conduct a regression and correlation analysis

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© 2020 Pearson Canada Inc.
153) The department manager using a combination of methods has forecast sales of toasters at a
local department store. Calculate the MAD for the manager's forecast. Compare the manager's
forecast against a naive forecast. Which is better?

Manager's
Month Unit Sales
Forecast
January 52
February 61
March 73
April 79
May 66
June 51
July 47 50
August 44 55
September 30 52
October 55 42
November 74 60
December 125 75

Answer:
Abs.
Month Actual Manager's Abs. Error Naive Error
January 52
February 61
March 73
April 79
May 66
June 51
July 47 50 3 51 4
August 44 55 11 47 3
September 30 52 22 44 14
October 55 42 13 30 25
November 74 60 14 55 19
December 125 75 50 74 51

The manager's forecast has a MAD of 18.83, while the naive is 19.33. Therefore, the manager's
forecast is slightly better than the naive.
Diff: 3 Type: ES
Skill: application
Objective: LO4 Compute three measures of forecast accuracy

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© 2020 Pearson Canada Inc.
154) The last seven weeks of demand at a new car dealer are shown below. Use a three-period
weighted-moving average to determine a forecast for the 8th week using weights of 1, 2, and 3.
Calculate the MAD for this forecast. What does the MAD indicate?

Week Sales
1 25
2 30
3 27
4 31
5 27
6 29
7 30
Answer: Week Sales 3WMA |error|
1 25
2 30
3 27
4 31 28 3
5 27 30 3
6 29 28 1
7 30 29 1
8 29

MAD = 8/4 = 2
An MAD of 2 means that the forecasting technique used was typically off by 2 units each period.
Diff: 3 Type: ES
Skill: application
Objective: LO4 Compute three measures of forecast accuracy

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© 2020 Pearson Canada Inc.